House Rent Allowance vs. Home Loan: What Is The Better Option To Save Tax?

Understand the benefits of House Rent Allowance (HRA) tax

Due to rising prices in the real estate industry, taking a home loan has become a necessity. Renting a house is better than paying EMI and buying your own house. As such, there are many tax rebates available on home loans. House Rent Allowance (HRA) is an essential part of the salary structure of most employed people. Usually, HRA is an amount that the company gives to employees for renting a house. As a taxpayer, you can claim a tax rebate on a payment amount in the form of house rent every year. The HRA exemption can also be claimed under Section 10 (13A) of the Income Tax Act.

In this article, we will tell you about the benefits of home loan and tax exemption in HRA.

Let us tell you about the tax exemption of HRA.

The amount of tax exemption from HRA will be the minimum among the three:

– Actual HRA received from the company. If the employee is working in a metro city, then 50 percent of salary and 40 percent of salary in non-metro city.

– Subtract 10 percent of salary from actual rent payment. In the salary from which it will be deducted, the original + DA +
Commission turn included.

Let us understand this with an example. A person works in Delhi. His basic salary is 50000. He lives in a rented house and pays rent of 10 thousand per month. He gets 15000 rupees as HRA allowance from his company.

He can claim such tax deduction for HRA. The amount of tax exemption from HRA will be the minimum among the three:

How much HRA was received – 15000

Since he lives in Delhi, 50% of the basic = 20000

How much rent paid- 10 percent of basic salary = Rs 10 thousand – Rs 4000 = Rs 6000

Hence HRA is exempted which will be = 6,000 rupees.

The remaining HRA, which is received from the HRA company, out of that minimum three = 15000-6000 = 9000 rupees.

Therefore, the remaining Rs 9000 will come as part of his taxable income under salary due to HRA.

Tax exemption on home loan: Home loan is an option with which you can fulfill your dream of buying your home. Home loan is available with all reputed banks and NBFCs. Apart from this, along with home loans, many other benefits are also available to the customers.

Under section 80C

Under this section of the Income Tax Act, a home loan customer can get a rebate of up to Rs 1.5 lakh on repayment of principal amount.

Under section 24B

Under this section of the Income Tax Act, if you are staying on your property or rent, you will get a tax rebate of Rs 2 lakh on the interest paid.

Therefore, a person can get a tax rebate of up to Rs 3.5 lakh on a home loan. But if you have a joint home loan and your co-buyer is also a co-applicant, then both can claim tax exemption up to Rs 3.5 lakh separately. Therefore, in case of joint home loan, tax exemption can be availed up to Rs 7 lakh only.

Can HRA and Home loan be claimed together for tax exemption?

The answer is yes! Both HRA and home loan can be claimed for tax exemption simultaneously. But this can only happen in certain situations.

– If you have bought a property in another city through a home loan and because of a job, you live in another city or some other valid reason.

– When you take a home loan for an under construction property, you have to live in a rented house till its completion and then you get a position of a new house.

– You have given the property which you have taken from home loan, on rent and again you are living in a rented house. You can do this too, but there should be a valid reason for it like you went to a rented house because there was less space for your family in the new house or any issue related to the location.

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